1 Watershed Financing - Moving Beyond Grants Tim Jones, USEPA Dan Nees, World Resources Institute In collaboration with the Environmental Finance Center University of Maryland Webcast sponsored by EPA’s Watershed Academy October 17, 2007 Webcast

2 Welcome! This Webcast features watershed finance approaches – sources, instruments, and institutions -- that can help you and your partners build sustainable watershed organizations and implement watershed plans

3 Why are we interested in watershed financing? In 2000, water quality inventories show that approximately 40% of streams, 45% of lakes, and 50% of estuaries assessed in the United States remain too polluted for fishing, swimming, and other uses There are not enough grants to fully fund watershed protection and restoration

4 Today’s Webcast Introduction to Watershed Finance Sources, instruments, and institutions Watershed Financing Process Assess sources and institutional capacity; implement strategies Effective Watershed Financing Strategies Key elements Watershed Finance Case Studies Cacapon and Lost River Land Trust, WV Montgomery County, MD

5 Charge to group Think creatively about finance mechanisms and approaches you may not have previously considered Use these ideas to develop innovative funding strategies

6 Introduction to Finance

7 What is financing? Financing is an allocation process comprised of acquiring, investing, and managing fiscal resources Ultimate goal of financing is to maximize return on investment Financing helps us determine how we should go about accomplishing a goal. It is the how and the when, not the why

8 Why finance? Finance provides long-term solutions: There are not, have never been, and never will be enough grants – public or private – to fully fund watershed protection and restoration Moves us from funding to investing Effective financing results in efficiency: Maximize return on the community’s investment

9 Why finance? (cont.) Finance is a community process: Multiple stakeholders, institutions, organizations, citizens Requires the community to prioritize Watershed financing mirrors the resource: Local problems resulting in local solutions

10 Why financing? Financing is how things get done!

11 Core financing components Revenue sources Financing instruments Financing institutions

12 Financing components: revenue sources Financing is about MONEY! Revenue source: payers of costs Ultimately, we are sources: Taxpayers, ratepayers, consumers, businesses, investors

13 Financing components: revenue sources (cont.) Revenue sources are diverse Appropriate revenue sources are determined by many factors: efficiency, sufficiency, equity, market behavior, community and political will Types of sources: taxes, fees, tolls, governments, foundations, organizations, marketplace, private equity (ownership) and wealth

14 Financing components: Instruments The tools and programs necessary for allocating fiscal resources Financing instruments connect sources to costs Effective financing instruments reduce costs, thereby maximizing return on investment

15 Financing components: Instruments (cont.) Choice of instrument is determined by many factors Efficiency Effectiveness Organizational structure Scale Community capacity and priorities

16 Financing components: Instruments (cont.) Debt An obligation to pay or do something: loans, bonds Allows leveraging – annual or consistent revenue results in lump sum Why debt? Taking action today is cheaper than taking action tomorrow

17 Financing components: Instruments (cont.) Grants Have served as the foundation for watershed restoration projects Excellent way to seed programs and projects Types: government (subsidies), private (foundations, corporations, individuals) Usually not a long-term solution

18 Financing components: Instruments (cont.) Market-based programs Trading and offset programs Fiscal incentives (tax credits) Purchasing and transferring development rights Voluntary programs

19 Financing components: Institutions The organizations needed to implement the financing process Critical component of community financing capacity NGOs

20 Local, state and federal governments Utilities and authorities Non-profits and NGOs For-profit corporations and businesses Private citizens NGOs Financing components: Institutions

21 Questions? Dan Nees, World Resources Institute

22 Process of Financing Watershed Protection

23 Watershed Financing Process Strengthen Institutional Capacity Develop Investment Strategies Assess, Attract & Leverage* Capital Evaluate & Adjust Regulatory Framework *Leverage = The degree to which an investor, business, or institution is utilizing borrowed money.

24 Watershed Financing Process Strengthen Institutional Capacity Develop Investment Strategies Assess, Attract & Leverage Capital Evaluate & Adjust Regulatory Framework

25 Assess, attract & leverage capital Key points on the process: Analyze capacity to attract capital, which includes assessing existing revenue streams and sources Evaluate and recommend new revenue sources and capital approaches Consider and involve key players (city, county, state, etc.) in the financing process

26 Assess, attract & leverage capital (cont.) Key issues to consider: Is current revenue capacity sufficient? What types of revenue sources are most appropriate? Public or private? What are the associated legal barriers?

27 Watershed Financing Process Strengthen Institutional Capacity Develop Investment Strategies Assess, Attract & Leverage Capital Evaluate & Adjust Regulatory Framework

28 Strengthen Institutional Capacity Key points in the process: Who has the financing obligation? Public? (federal, state, local government) Private? (businesses, citizens, consumers) Is the capacity in place to leverage and allocate fiscal resources?

29 Key points in the process: If institutional capacity is lacking, where do breakdowns occur? How can capacity be strengthened? Are new institutions required? Strengthen Institutional Capacity (cont.)

30 Watershed Financing Process Strengthen Institutional Capacity Develop Investment Strategies Assess, Attract & Leverage Capital Evaluate & Adjust Regulatory Framework

31 Evaluate & adjust regulatory framework Why law and regulation? They correct failures in the marketplace Reduce costs to the community by fostering innovation and compliance

32 Evaluate & adjust regulatory framework (cont.) Key issues/questions to consider: Are regulations even necessary? Who has regulatory responsibility? Will regulations improve efficiency? Will regulations shift costs, and if so, to whom?

33 Watershed Financing Process Strengthen Institutional Capacity Develop Investment Strategies Assess, Attract & Leverage Capital Evaluate & Adjust Regulatory Framework

34 Develop investment strategies Key issues to consider: Focus on performance, not programs Invest in future success: information, research, monitoring Invest in incentives Coordinate with other community programs and priorities

35 Watershed Financing Process: Summary Strengthen Institutional Capacity Develop Investment Strategies Assess, Attract & Leverage Capital Evaluate & Adjust Regulatory Framework

36 Questions? Dan Nees, World Resources Institute

37 Join us for our 28 th Watershed Academy Webcast, November 28 th, on… Smart Growth Visit: epa.gov/watershedwebcasts for more information

38 Case Study Examples

39 Characteristics of effective financing strategies Community-based, incorporating multiple stakeholder groups Integrated, combining a variety of sources, instruments, and institutions Mirror the watershed, incorporating multiple landowners (public and private), land uses and landscapes

40 Two case studies Cacapon and Lost Rivers Land Trust, West Virginia: land protection strategy Montgomery County, Maryland: stormwater management

41 Two case studies (cont.) Analysis criteria: Developing revenue sources Establishing institutional capacity The role of regulations Key investment strategies

42 Cacapon and Lost Rivers Watershed, WV The Cacapon and Lost Rivers are actually one river 625 sq mile watershed Located in Hampshire, Hardy and Morgan counties in West Virginia

43 Cacapon and Lost Rivers Watershed (cont.) Cacapon River suffers from fecal coliform contamination Development pressures from Washington, DC metropolitan area New highway, Corridor H, bisects the watershed

44 Cacapon and Lost Rivers Land Trust: A strategic approach Established in 1995 to protect the watershed and the area’s rural heritage 2002: Healing Waters event prioritized lands for protection 2005: Financing Charrette identified a financing strategy for land protection 2007: Strategic Planning Retreat laid out plan to improve organizational capacity, ensure sustainability, and implement Healing Waters conservation plan – this costs $$$

45 Cacapon and Lost Rivers Land Trust: A strategic approach (cont.) The Trust has set a goal of raising $200,000 annually by 2010 The associated financing strategy includes plans to: Diversify funding sources Consider cost-reducing measures Identify sustainable revenue stream Examine market-based opportunities Effectively develop institutional relationships

46 Cacapon and Lost Rivers Land Trust: financing strategy (cont.) Diversifying funding sources Avoids quick gains and quick declines Organizational stability Sustainable income despite changes in government budgets, funders’ priorities, or market conditions

47 Cacapon and Lost Rivers Land Trust: financing strategy (cont.) Consider cost-reducing measures Collaboration Regulation Leveraging community priorities

48 Cacapon and Lost Rivers Land Trust: Financing Strategy (cont.) Identify sustainable revenue streams Camp tuition surcharges Management and monitoring fees Mitigation monies Major donor campaign State and federal funds

49 Cacapon and Lost Rivers Land Trust: financing strategy (cont.) Examine market-based programs Development rights program Trade land programs Tourism

50 Cacapon and Lost Rivers Land Trust: financing strategy (cont.) Revenue: diversifying to minimize changes in any one source of funds Institutional capacity: looking to improve internal capacity and develop mutually beneficial partnerships that fill institutional gaps Regulatory framework: working with regulatory agencies to coordinate agendas and establish Trust as go-to for mitigation and enforcement $$ Investment: parcel-based land preservation that has been strategically prioritized

51 Montgomery County, MD Stormwater Utility

52 Montgomery County, MD

53 Montgomery County, MD Just north of Washington, DC Total population: almost 1 million (growing) Very affluent, very urban Lots of urban stormwater runoff

54 Stormwater utilities Public enterprises developed to support urban stormwater programs Resulted from increased laws and restrictions: amendments to the Clean Water Act More than 500 stormwater utilities exist across the United States

55 Montgomery County, MD Multiple program goals Support required permit obligations Create efficiencies/reduce redundancies Establish and maintain fiscal capacity

56 Montgomery County, MD (cont.) Revenue source All county citizens and businesses (tax- exempt institutions are NOT exempt from fee) Revenue is collected as part of property tax bills

57 Montgomery County, MD (cont.) Revenue source Rate is based on equivalent dwelling unit (EDU) EDU: one average single family unit EDU in Montgomery County: 2,400 ft 2 Rate is established annually Current rate: $25 per EDU

58 Montgomery County, MD (cont.) Institutional structure County established new institution to manage stormwater programs Created efficiency: reduced redundant County programs Program focuses on operations and maintenance of the system

59 Montgomery County, MD (cont.) Regulatory framework Stormwater is now regulated: NPDES permitting program Montgomery County is permited under the Municipally Separate Storm Sewer System (MS4) program Phase 1 community (big) Enforced by the state

60 Montgomery County, MD (cont.) Investment strategy Program pays for maintenance of stormwater facilities: Inspection Construction/reconstruction Modifications Financing tools: program does NOT support debt financing (pay as you go)

61 Montgomery County, MD (cont.) Revenue: sustainable, dedicated Institutional capacity: improved and expanded Regulatory framework: foundation of the entire process Investment: focus on maintenance

62 Conclusions Finance is the process for success Watershed financing requires the entire community to participate Finance is how things ultimately get done

63 Dan Nees People and Ecosystems Program World Resources Institute 10 G Street, NE Washington, DC (202) For more information: University of Maryland Environmental Finance Center 1104 Preinkert Field House College Park, MD (301)

64 Questions? Dan Nees, World Resources Institute Tim Jones, USEPA

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